Does Zomato Have A Story To Tell About Success Of Startup Ventures In India? - Anand Lunia

A large round $50M in Zomato got me thinking. Here was a business that had raised a rather large amount of money while having very low revenues. The investor must have a lot of courage, belief and patience. It was Infoedge, the listed parent co of Naukri and also known for funding Policybazaar, Meritnation, Jeevansaathi, 99acres etc. Would a regular VC alone have invested so much?

And then I compiled this list.

Hence the point

That a large proportion of Consumer Internet companies, at least in the past, have been funded by Corporate Investors. Perhaps regular VCs have preferred topline first businesses like restaurants, healthcare chains, pharma manufacturing (!).
The early stage VCs in India have done a decent job, however, of following these corporate nurtured ventures with Series B/C investments, in a slightly herd like behaviour (the way everybody queued up recently for a certain on-line fashion co was funny.)

Why has it worked for some?

Successful entrepreneurs, who have high conviction on the power of internet (or mobile), recognise similar patterns in other companies. And having multiple online assets is one way of combating the small size of Indian market. Shaadi, BharataMatrimony andNaukri have all become holding companies, organically or in-organically building mini-empires , some with great success (InfoEdge) . What is interesting is that these consolidators are not the most cutting edge of Indian internet, themselves and need to move beyond web 1.0 or even re-invent themselves.
And the action is not restricted to only those who are from the B2C space. The founder of One97 faced challenges in the VAS industry and his response was to acquire existing provider; Paytm

What’s the alternative?

Some VCs have tried incubating these types of businesses with mixed success. Matrix stands apart; with bets on Quickr(carved out of Ebay?) and Verse (Onmobile?) rather early on. Zovi (SAIF) is not yet there yet. A few VCs tried to incubate, EIRs etc but those programs have been largely folded up now.

The purpose built incubators

Naspers and Rocket earlier had a mixed track record, and seem to have finally got something going. Jabong started quite late and but is amongst the leaders in the garment E-Commerce space. Angelprime has done well, though their model is more unique. There were others like Smile too, and a few others who just could not take off.

K Ganesh and Srini of Tutorvista fame have started quasi incubation and have had some early success. But they are unique as this is their personal capital and they invest more than create companies. Their speed of creating and exiting companies is unparalleled in India and it seems to be working for their investments too.

Vivek Pahwa of Accentium called the shots in the online consumer space with portals like Studynation, Desimartini, Gaadi Secondshaadi etc for a while, before the market shifted its attention to Ecommerce and Social ventures. But their formula was to build and look for quick exits rather than look for outside capital.

Dissecting some successes

The operating word for the failed ones was ‘revenue’. The operating word for the successful ones was Product and Usage. Revenue is the best strategy for continuous funding rounds in India.
Having a corporate venture fund who will go all the way up to $10-20 M investment without seeking validation from one more VC is a big advantage.

Going after a large market was another big mistake that many made. That explains the pivots pretty much every E-Commerce company made AFTER raising a large VC round. This also explains the pivots that many content companies did into E-Commerce. What are the chances that Zomato would have been doing table reservations/food delivery/gourmet food E-Commerce after raising the first $2M?

Then there are some who make everybody else look very very good. ‘Bigadda’ anyone or we have forgotten it entirely? They even had hoardings saying ‘Dead on Arrival’ before they were out of beta.

Learnings and Impact on the Ecosystem

There was a time when I hoped that some of the successful entrepreneurs will become VC GPs. But they have clearly found a better way of making the same impact- using their balance sheet. But, I hope at least a few will start/join funds as GPs. The VC landscape in the next 5 years will surely look different.
Not out of line to speculate that good deals will keep going to previously successful entrepreneurs – because start-ups would rather work with them and because these are the guys bold enough to back new models.

And listed corporates don’t have as much exit pressure. Sometimes VCs need to exit a good company early in their own cycle.Redbus has been touted as a success story at a $110M exit. And yet one only wonders what it could have been. Macro issues are not the only reason why returns in the industry have been so poor.

Disclaimers

This list suffers from the ‘Necessary but not Sufficient Information’ problem.
All facts have not been verified and just quoted from memory. Even a simple Google search might reveal some errors and omissions.
I may have mentioned companies and events, including people associated with them in complete black and white, which is absolutely not so.

Anand Lunia is the founder of IndiaQuotient, a super angel fund that believes that ‘Entrepreneur is the King’. Earlier, Lunia was ED at Seedfund, led investments in tech, internet, education and retail ventures. He was co-founder of Brainvisa, leading e-learning company of India, creating the business plan, leading the team in fund raising, ramping up and exit. He was also Angel Investor in Inkfruit, Faasos, Mydentist and Board of Trustees at TiE,Mumbai.